Utmost dispatch and utmost clarity

Seeking as ever to optimize scheduling, owners often voyage charter out while a vessel is still performing a previous fixture, and will sometimes enter into an intermediate charter, which they plan to complete beforehand.

Charterers’ and often sellers’ arrangements depend on valid arrival or loading dates, and owners must ensure that all such are genuine and reasonable. In giving them, they must allow for transit, cargo operations and all ancillary matters, and will sometimes be held to account under familiar provisions and well established principles.

Thus:

1) If a fixture says that owners will proceed with all convenient speed or, often, with the utmost dispatch to a load port, and also gives an ETA or ERTL ("Expected Ready To Load") , owners have an absolute obligation to start the approach voyage at a time when it is reasonably certain that the vessel will arrive on or around the given date;

2) Any charter party exceptions only apply once the approach voyage has begun. A vessel might be delayed, in port or transit, for many reasons, including congestion, bad weather, breakdown or even casualty. Which side bears the risk of operational difficulty depends on what has been promised, or excluded, by the fixture wording. MOL’s VLCC ‘Pacific Voyager’ is a good example of that.

Still laden under a prior charter party, the vessel was fixed on an amended Shellvoy5 form for carriage to the Far East and had to “perform her service with utmost dispatch and ... proceed to [Rotterdam] … and ... load ... “.

This fixture had no load port ETA or ERTL, but (by incorporating the previous charter itinerary for the Red Sea, eastern Mediterranean and English Channel) it gave an ETA at that final disport, near Le Havre.

During the Suez Canal transit and through no fault of owners, the vessel hit a submerged object.

She needed extensive repairs and charterers terminated and sought damages. Subject to liability, these were agreed at $1.2 mill.

Before this decision, it was unclear whether the absolute obligation at (1) above in fact arose where no load port ETA or ERTL had been given. So the question was whether, in those circumstances, such nevertheless existed, and by reference to (a) the previous itinerary or perhaps (b) the cancelling date.

It was agreed that (2) above meant that owners could not invoke any charter party exception.

Trial

The trial Judge ruled that the various ETAs under the prior fixture equated to estimates on which charterers could rely in identifying the commencement of their chartered service, and in order to make loading arrangements, and were thus meant to perform the same function as a load port ETA.

Owners were therefore under an absolute obligation to start the approach voyage to Rotterdam after a reasonable time for discharging at her final disport under the previous fixture.

Owners argued that:

(a) Wording that differed from that in the decided cases meant a different outcome - here there was no load port ETA or ERTL, and the utmost despatch obligation was expressly ‘subject to the terms of this charter’, so

(b) Such could only arise when the vessel left the final disport under her prior charter; but

(c) It never arose, as that never happened (charterers countered that, if this was right, the utmost despatch obligation would not apply even if failure to leave the last disport had been entirely owners’ fault);

(d) Just as for the common shorthand ‘bss iagw/ wp’, the itinerary was simply to highlight that the vessel was still performing under a prior charter party.

The Court of Appeal ruled that:

1) The itinerary was very important to charterers, and did not merely signpost that the vessel was still subject to a previous charter;

2) Nor did ‘bss iagw/wp’, which instead emphasized that (as anyway required) the estimates were honest and on reasonable grounds, and owners got no help from ‘subject to the provisions of this charter’;

3) Likewise, the utmost despatch obligation is important and is intended to assist a charterer. The prior itinerary plainly showed that the vessel was not to sail for the load port ‘forthwith’, and it could also be used to determine the alternative obligation, which was to start that approach voyage when the vessel would reasonably be supposed to have left her last disport after a reasonable time for discharging.

Owners were therefore in breach of their obligation, since they did not sail for Rotterdam, then or at any time, and were liable for $1.2 mill.

C Demurrage commented - This decision shows that, even if there is no ETA or ETRL, if owners want to make the beginning of a charter service contingent on the conclusion of the prior one, very clear words will be needed.

In another case analyzed by C Demurrage, the question of an arbitration agreement arose again.

This familiar issue arose in a novel way in Sonact Group Ltd v Premuda SpA (the ‘FOUR ISLAND’) ([2018] EWHC 3820 (Comm)).

Most fixtures contain clauses that make disputes subject to, say, English law and High Court jurisdiction, or more often provide for arbitration, also detailing how the tribunal is formed and citing the governing rules, such as LMAA.

But very few demurrage disputes get that far. Commercial operators document, present, negotiate and settle in the great majority of cases.

This is mostly undertaken by correspondence but occasionally at a meeting, called to wrangle over a number of matters, with each side generally seeking one overall deal. Sometimes lawyers are involved, but even then the bargain is typically recorded just by email. Formal documents are sometimes drawn up, but

not usually.

An awkward problem?

But what if charterers do not pay the agreed sum? Owners will press them, perhaps then involving lawyers, but in most cases the only way to compel payment is by formal action. But that cannot be under the charter  party. It has to be under the settlement agreement that (for this purpose) has replaced it.

However, while the fixture may have stipulated arbitration in the clearest terms, the concluding deal may not have done, and that might enable charterers to challenge owners’ attempted arbitration, by urging lack of jurisdiction.

That is exactly what happened in the Aframax ‘Four Island’ case. Owners Premuda claimed almost $719,000 demurrage and about $190,000 heating costs under an amended Asbatankvoy charter that contained the usual arbitration clause.

The claim was settled by an email exchange, under which charterers Sonact Group agreed to pay $600,000 for all owners’ claims.

But they did not pay, and later challenged arbitration on the basis that the agreement did not provide for that, so the arbitrators had no jurisdiction over a claim for the agreed sum.

They said that owners’ claim was not under the charter   party. It was under the settlement agreement. That did not have an arbitration provision and no words had been used that could incorporate the charter party clause.

The Tribunal ruled that it did have jurisdiction, as there was an agreement to arbitrate anything arising under the settlement, and on appeal the

Judge agreed.

The Judge said that:

1. As mostly happens, the parties had traded views, in writing, and eventually reached an agreement;

2. That was likewise in correspondence, and not in a separate, self-contained document;

3. The parties’ unstated intention was that their agreement should have the same dispute resolution wording as the fixture under which the claims arose;

4. Claims handling like this is standard, and parties would be astonished to be told that the same mechanism did not apply;

5. Anything else would require the payee to establish court jurisdiction, probably where the defaulting party was based;

6. Parties can agree dispute resolution terms that differ from their charter party; however

7. Especially if there is no separate settlement agreement, but just an exchange of emails, any such would have to be expressly recorded, and could not simply be inferred;

8. It was obvious that the parties intended the arbitration clause to continue to apply if the settlement sum was not paid, and inconceivable that they had contemplated anything else;

9. There was no rule that, once parties enter into the new legal relationship of a settlement agreement, an arbitration clause in the underlying contract no longer applies; It was equally obvious that the parties intended that English law, as in the charter party, would likewise still apply.

Charterers also argued that, under owners’ notice commencing arbitration, the arbitrators had been appointed for disputes under the charter party not the settlement agreement.

The Judge rejected that, too. Applying the established “broad and flexible approach”, the notice here was effective to refer a claim for the agreed sum to arbitration.

Discussion

Charterers’ arguments were firmly rejected, but the Court did not lay down a general rule, and each case is different.

Where, as normal, a demurrage claim is made and settled in correspondence, it might be hard for a defaulter to argue that the charter party dispute resolution terms no longer apply.

But that will not always be so. It will depend on what the parties have said, and the exchanges might allow one side to argue that some other mechanism applies to the settlement.

This is perhaps especially so where the parties have captured their agreement in a separate document, or maybe under a different string of correspondence.

It may also be so where the parties have met to deal in aggregate with several claims, arising under fixtures with different disputes clauses, so it may be hard to say which was intended to apply.

Parties should take great care, and perhaps seek advice on this. It will generally be sensible to ensure that a settlement agreement, in whatever form, deals expressly with how any dispute under it will be determined, C Demurrage said.